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Products and Services offered by bank
The Indian banking has come from a long way from being a sleepy
business institution to a highly proactive and dynamic entity.
This
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Products and Services offered by bank
parameter that distinguishes these banks from all the other banks
in the Indian banking is the level of service that is offered to the
customer. Their focus has always centered on the customer
understanding his needs, preempting him and consequently
delighting him with various configurations of benefits and a wide
portfolio of products and services. These banks have generally
been established by promoters of repute or by high value domestic
financial institutions.
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Products and Services offered by bank
Pre-Nationalization Era.
Nationalization Stage.
Post Liberalization Era.
1) Pre-Nationalization Era:
In India the business of
banking and credit was practices even in
very early times. The remittance of money through Hundies,
an indigenous credit instrument, was very popular. The
hundies were issued by bankers known as Shroffs, Sahukars,
Shahus or Mahajans in different parts of the country.
The modern type of banking, however, was
developed by the Agency Houses of Calcutta and Bombay
after the establishment of Rule by the East India Company in
18th and 19th centuries.
During the early part of the 19 th Century, ht
volume of foreign trade was relatively small. Later on as the
trade expanded, the need for banks of the European type
was felt and the government of the East India Company took
interest in having its own bank. The government of Bengal
took the initiative and the first presidency bank, the Bank of
Calcutta (Bank of Bengal) was established in 180. In 1840,
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Products and Services offered by bank
2) Nationalization Stages:
After Independence, in 1951, the All India Rural Credit survey,
committee of Direction with Shri. A. D. Gorwala as Chairman recommended
amalgamation of the Imperial Bank of India and ten others banks into a
newly established bank called the State Bank of India (SBI). The
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Products and Services offered by bank
1959
2. State Bank of Bikaner
1st January
1960
3. State Bank of Jaipur
1st January
1960
4. State Bank of Saurashtra
1st January
1968
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Products and Services offered by bank
1st January
1960
On 19th July 1969, then the Prime Minister, Mrs. Indira Gandhi
announced the nationalization of 14 major scheduled Commercial
Banks each having deposits worth Rs. 50 crore and above. This was a
turning point in the history of commercial banking in India.
Later the Government Nationalized six more commercial
private sector banks with deposit liability of not less than Rs. 200
crores on 15th April 1980, viz.
i)
Andhra Bank.
ii)
Corporation Bank.
iii)
iv)
v)
vi)
Vijaya Bank.
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Products and Services offered by bank
Consequences of Nationalization:
The quality of credit assets fell because of liberal credit extension
policy.
Political interference has been as additional malady.
Poor appraisal involved during the loan meals conducted for credit
disbursals.
The credit facilities extended to the priority sector at concessional
rates.
The high level of low yielding SLR investments adversely affected the
profitability of the banks.
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Products and Services offered by bank
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Products and Services offered by bank
foundation for the banking sector reforms. These reforms tried to enhance
the viability and efficiency of the banking sector. The Narasimham
Committee suggested that there should be functional autonomy,
flexibility in operations, dilution of banking strangulations, reduction in
reserve requirements and adequate financial infrastructure in terms of
supervision, audit and technology. The committee further advocated
introduction of prudential forms, transparency in operations and
improvement in productivity, only aimed at liberalizing the regulatory
framework, but also to keep them in time with international standards.
The emphasis shifted to efficient and prudential banking linked to better
customer care and customer services.
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Products and Services offered by bank
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Products and Services offered by bank
place for having the first branch inception in the year 1934.
With successive years of patronage and constantly setting
new standards in banking, ING Vaysya Bank has many
credits to its account.
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Products and Services offered by bank
Private Sector
Banks
Old Pvt. Sector
Banks (25)
New Pvt.
Sector Banks
(9)
Current scenario
Currently (2007), overall, banking in India is
considered as fairly mature in terms of supply, product range
and reach-even though reach in rural India still remains a
challenge for the private sector and foreign banks. Even in
terms of quality of assets and capital adequacy, Indian banks
are considered to have clean, strong and transparent
balance sheets-as compared to other banks in comparable
economies in its region. The Reserve Bank of India is an
autonomous body, with minimal pressure from the
government. The stated policy of the Bank on the Indian
Rupee is to manage volatility-without any stated exchange
rate-and this has mostly been true. With the growth in the
Indian economy expected to be strong for quite some timeespecially in its services sector, the demand for banking
services-especially
retail
banking,
mortgages
and
investment services are expected to be strong. M&As,
takeovers, asset sales and much more action (as it is
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Products and Services offered by bank
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Products and Services offered by bank
Urban
Private
Credit
Co-operative Banks
Short-term
EXIM
credit
Development Banks
Long-term
Industrial
credit
Agricultural
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Products and Services offered by bank
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Products and Services offered by bank
(196)
(3) Private Sector Banks:
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Products and Services offered by bank
Role of Banks:
Banks play a positive role in economic
development of a country as repositories of communitys
savings and as purveyors of credit. Indian Banking has aided
the economic development during the last fifty years in an
effective way. The banking sector has shown a remarkable
responsiveness to the needs of planned economy. It has
brought about a considerable progress in its efforts at
deposit mobilization and has taken a number of measures in
the recent past for accelerating the rate of growth of
deposits. As recourse to this, the commercial banks opened
branches in urban, semi-urban and rural areas and have
introduced a number of attractive schemes to foster
economic development.
The activities of commercial banking have growth
in multi-directional ways as well as multi-dimensional
manner. Banks have been playing a catalytic role in area
development, backward area development, extended
assistance to rural development all along helping agriculture,
industry, international trade in a significant manner. In a
way, commercial banks have emerged as key financial
agencies for rapid economic development.
By pooling the savings together, banks can make
available funds to specialized institutions which finance
different sectors of the economy, needing capital for various
purposes, risks and durations. By contributing to government
securities, bonds and debentures of term-lending institutions
in the fields of agriculture, industries and now housing,
banks are also providing these institutions with an access to
the common pool of savings mobilized by them, to that
extent relieving them of the responsibility of directly
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Products and Services offered by bank
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Products and Services offered by bank
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Products and Services offered by bank
Main Objective:
Monetary Authority
Formulates, implements and monitors the monetary policy.
Objective: maintaining price stability and ensuring adequate flow of
credit to productive sectors.
Regulator and supervisor of the financial system
Prescribes broad parameters of banking operations within which the
countrys banking and financial system functions.
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Products and Services offered by bank
Issuer of currency
Issues and exchanges or destroys currency and coins not fit for
circulation.
Objective: to give the public adequate quantity of supplies of currency
notes and coins and in good quality.
Developmental role
Related Functions
Banker to the Government: performs merchant banking function for
the central and the state governments; also acts as their banker.
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Products and Services offered by bank
Supervisory Functions:
In addition to its traditional central functions, the
Reserve bank has certain non-monetary functions of the
nature of supervision of banks and promotion of sound
banking in India. The Reserve Bank Act, 1934, and the
Banking Regulation Act, 1949 have given the RBI wide
powers of supervision and control over commercial and
cooperative banks, relating to licensing and establishments,
branch expansion, liquidity of their assets, management and
methods of working, amalgamation, reconstruction and
liquidation. The RBI is authorized to carry out periodical
inspections of the banks and to call for returns and
necessary information from them. The nationalization of 14
major Indian scheduled banks in July 1969 has imposed new
responsibilities on the RBI for directing the growth of banking
and credit policies towards more rapid development of the
economy and realization of certain desired social objectives.
The supervisory functions of the RBI have helped a great
deal in improving the standard of banking in India to develop
on sound lines and to improve the methods of their
operation.
Promotional Functions:
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Products and Services offered by bank
Co-operative Banks:
The Co-operative bank has a history of almost 100
years. The Co-operative banks are an important constituent
of the Indian Financial System, judging by the role assigned
to them, the expectations they are supposed to fulfill, their
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Products and Services offered by bank
number, and the number of offices they operate. The cooperative movement originated in the West, but the
importance that such banks have assumed in
India is rarely paralleled anywhere else in the
world. Their role in rural financing continues
to be important even today, and their
business in the urban areas also has
increased phenomenally in recent years
mainly due to the sharp increase in the
number of co-operative banks.
While the co-operative banks in rural areas mainly
finance agricultural based activities including farming, cattle,
milk, hatchery, personal finance etc. along with some small
scale industries and self-employment driven activities, the
co-operative banks in urban areas mainly finance various
categories of people for self-employment, industries, small
scale units, home finance, consumer finance, personal
finance, etc. Some of the co-operative banks are quite
forward looking and have developed sufficient core
competencies to challenge state and private sector banks.
According to NAFCUB the total deposits &
lendings of Co-operative Banks is much more than Old
Private Sector Banks & also the New Private Sector Banks.
This exponential growth of Co-operative Banks is attributed
mainly to their much better local reach, personal interaction
with customers, their ability to catch the nerve of the local
clientele. Though registered under the Co-operative
Societies Act of the Respective States (where formed
originally) the banking related activities of the co-operative
banks are also regulated by the Reserve Bank of India. They
are governed by the Banking Regulations Act 1949 and
Banking Laws (Co-operative Societies) Act, 1965.
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Products and Services offered by bank
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Products and Services offered by bank
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Products and Services offered by bank
Maketing concept
7 PS of BANKING SECTOR
It is very important for any bank to identify the 7 Ps of services so
was understands their customers better and provide them with best of
service. The 7 Ps are:
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Products and Services offered by bank
1. PRODUCT MIX
2. PRICE MIX
3. PLACE
4. PROMOTION
5. PEOPLE
6. PROCESS
7. PHYSICAL EVIDENCE
PRODUCT MIX
The product mix of a company includes all different product lines
a company offers to its customers. The product line of a bank might
easily include more than 100 different services. In todays competitive
scenario it has become very necessary for a bank to provide its
customers with a wide variety of services and the best technology in
order to attract them. Here is an example of some of the products
offered by UTI Bank to its customers.
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Products and Services offered by bank
wide one depending from bank to bank. A wide mix encourages more
sales since the banks are able to diversify and provide more to their
customers and they also appeal to a larger target market.
Depth
Depth of the product mix is the number of product items in
each product line. Banks with more schemes and services have more
depths than those offering only a few.
Here is table giving an example of Width and Depth in the Product
Mix:
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Products and Services offered by bank
PRODUCT LEVELS
Core Benefit:
It is the main or core reason why the customer will buy the
service of the bank. More like the basic purpose or necessity.
Basic Product:
The core benefit is converted into a basic product. That is the
service can used by the customer in order to fulfill his/her needs.
Expected Product:
It refers to the set of attributes and conditions expected by the
customers when they purchase the service.
Augmented Product:
It is the additional feature that the banks provide which exceeds
the customers expectations.
Potential Product:
Innovations and product differential is the bases of a Potential
Product. If the banks alter its services according to the requirements of
the individual customers it reaches this level.
Core
Product
The basic
necessity
to use
Basic
Product
Safety of
deposits
Loan able
Expected
Product
Timely
service Long
banking
Augmented
Product
Goods waiting
rooms
Extensive ATM
Potential
Product
Mobile and
internet
Banking New
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Products and Services offered by bank
hours Low
network
interest rates Promotional
Discounts
Schemes
tailored for
specific
customers
PRICE MIX
The price mix in the banking sector is nothing but the interest
rates charged by the different banks. In todays competitive scenario
where customer is the king, the banks have to charge them interest at a
rate in accordance with the RBI directives. Banks also compete in
terms of annual fees for services like credit cards, DMAT etc. Another
important aspect of the banks pricing policy today is the interest
charged on the Home Loans and Car Loans. With Indias economy
progressing, there are more and more buyers seeking these loans but
at a very competitive interest rate.
Lets understand this with an example. A particular buyer
approaches a bank for a car loan for a period of 3 years. He is charged
Rs. 20,000 as interest. However, if a sale representative of another
bank comes to know of this deal, he will try to attract the customer by
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Products and Services offered by bank
giving him a better deal i.e. a loan at a lower rate on interest. In this
way, it is the customer that ultimately benefits.
Add on Card
Duplicate Card
Other General Charges
Current Account
Transaction Charges
Charges for issue of
Cheques book
Issue of duplicate
statement
Account closure
Savings Account
NIL
NIL
NIL
NIL
Rs.100
Rs.100
This example evinces some of the charges that the customer has to pay
for the services provided by the bank.
The pricing factor is very important because of the kind of
competition that is prevailing today in the Indian market. However it
is very important to understand that in the banking sector, the main
pricing policy is concerned with the interest rate charged. This interest
rate is however regulated by the RESERVE BANK OF INDIA and
THE INDIAN BANKING ASSOCAITION. Any one particular bank
or a group of banks does not regulate it. The interest rate charged
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Products and Services offered by bank
cannot be higher than that decide by the RBI and the INDIAN
BANKING ASSOCIATION.
Thus, inspite of the constraints in the pricing policy due to the
RBI directives there are mainly three types of pricing methods
adopted by banks. They are:
Value pricing:
Banks having unique or different products or schemes mainly
do this type of pricing. They usually charge a combination of high and
low prices depending on the customer loyalty as well as the products.
This type of pricing strategy is usually coupled with promotion
programmes.
Mark up pricing:
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Products and Services offered by bank
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Products and Services offered by bank
PLACE MIX
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Products and Services offered by bank
Place mix is the location analysis for banks branches. There are
number a factors affecting the determination of the location of the
branch of bank. It is very necessary a bank to situated at a location
where most of its target population is located.
Some of the important factors affecting the location analysis of a bank
are:
1. The trade area
2. Population characteristics
3. Commercial structure
4. Industrial structure
5. Banking structure
6. Proximity to other convenient outlets
7. Real estate rates
8. Proximity to public transportation
9. Drawing time
10.Location of competition
11. Visibility
12.Access
It is not necessary that all the above conditions have to be satisfied
while selecting the location but it should be tried to satisfy as many of
them as possible.
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Products and Services offered by bank
2. Population Characteristics:
The demography of a place is a very important factor. This
includes:
3. Commercial Structure:
The commercial structure refers to the level of commerce i.e.
business activities taking place at a particular location. The higher the
level of business activities taking place in a particular location the
more preferable it is for setting up a bank branch.
4. Industrial Structure:
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Products and Services offered by bank
5. Banking Structure:
The Banking structure refers to the existence of other banks in
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Products and Services offered by bank
9. Drawing Time:
Drawing time refers to the time period during which a customer
can draw money from the banks. It should be convenient to the
customer and somewhat flexible to accommodate the customers
needs. No bank has more than a certain amount with them and in case
a customer wants to withdraw an amount more than that available
with the bank, the bank needs to draw that amount from other banks.
Hence, a location must be such that it facilitates minimum drawing
time.
10. Location of Competition:
The existence of other banks also means competition. If the level of
competition is very high in a particular location, it is necessary that a bank does a
lot of market research before opening a branch so as to estimate the kind of
business it would get.
10. Visibility
The location of a branch should be such that it is visible and
easily noticed by the customers as well other people.
10. Access:
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Products and Services offered by bank
Promotion Mix
Promotion is nothing but making the customer more and more
aware of the services and benefits provided by the bank. The banks
today can use a lot of new technology to communicate to their
customers. Two of the fastest growing modern tools of
communicating with the customers are:
1. Internet Banking
2. Mobile Banking
This can be better explained with the example of SBI bank.
SMS services
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Products and Services offered by bank
performed
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Products and Services offered by bank
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Products and Services offered by bank
It should be borne in mind that the advertisement is first tested for its
effectiveness. This should be done with the help of various techniques
like testing effectiveness on a sample group. This helps determine the
success of the advertisement and in case of any problem the
advertisement can be altered and remedied.
Personal Selling:
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Products and Services offered by bank
Sales Promotion:
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Products and Services offered by bank
shows,
discounts
and
commission,
Telemarketing:
In recent times telemarketing has gained increasing importance
as an effective tool for promotion. The telemarketing is a process of
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Products and Services offered by bank
Internet:
The use of Internet as a promotional tool is increasing. More
and more banks are using Internet to promote their services. The
online banking has made it even easier for the customers to avail the
banks services. No longer do people have to go to their bank
branches for small petty matters like checking their balance etc. All
this can be done with the help of a few clicks.
Thus, these were the numerous ways in which a bank can
promote its services and create more awareness amongst the people.
People
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Products and Services offered by bank
Process Mix
The process mix constitutes the overall procedure involved in
using the services offered by the bank. It is very necessary that the
process is very customer friendly. In other words a process should be
such that the customer is easily able to understand and easy to follow.
Today if particular banks formalities are long and the procedure very
complicated the overall process fails an the customer may not be
inclined towards using that banks services.
Lets take for example the process for application for a car loan.
Now this mainly involves 3 things.
1. Producing of proper documents
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Products and Services offered by bank
PHYSICAL EVIDENCE
Physical evidence is the overall layout of the place i.e. how the entire
bank has been designed. Physical evidence refers to all those factors
that help make the process much easier and smoother. For example, in
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Products and Services offered by bank
The SBI has decided in introducing a common uniform for all the
employees in all its branches all over India. The plan is possibly in line
with the aggressive retail banking adopted by HSBC. A common uniform
its nothing like a revolutionary change but however this little change
makes it very easy for the customer to identify with his service provider
and makes the entire process very easy for him. The more the bank does
to make the service easier and better the more satisfied will be the
customer.
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Products and Services offered by bank
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Products and Services offered by bank
Trade Finance:
Issuing and confirming of letter of credit.
Drawing, accepting, discounting, buying, selling,
collecting of bills of exchange, promissory notes, drafts,
bill of lading and other securities.
Some co-operative banks are scheduled banks, while others
are non-scheduled banks. For instance, SCBs and some UCBs
are scheduled banks but other co-operative bank are nonscheduled banks. At present, 28 SCBs and 11 UCBs
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Products and Services offered by bank
Treasury Operations:
Buying and selling of bullion. Foreign exchange
Acquiring, holding, underwriting and dealing in shares,
debentures, etc.
Purchasing and selling of bonds and securities on behalf
of constituents.
The banks can also act as an agent of the
Government or local authority. They insure, guarantee,
underwrite, participate in managing and carrying out
issue of shares, debentures, etc.
Apart from the above-mentioned functions of
the bank, the bank provides a whole lot of other
services like investment counseling for individuals,
short-term funds management and portfolio
management for individual undertakes the inward and
outward remittances with reference to foreign exchange
and collection of varied types for the Government.
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Products and Services offered by bank
is charged
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Products and Services offered by bank
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Products and Services offered by bank
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Products and Services offered by bank
To Banks
Alternative to extend banking hours.
Crowding at bank counters considerably reduced.
Alternative to new branches and to reduce operating
expenses.
Relieves bank employees to focus an more analytical
and innovative work.
Increased market penetration.
ATMs can be installed anywhere like Airports,
Railway Stations, Petrol Pumps, Big Business arcades,
markets, etc. Hence, it gives easy access to the
customers, for obtaining cash.
The ATM services provided first by the foreign
banks like Citibank, Grind lays bank and now by many
private and public sector banks in India like ICICI Bank,
HDFC Bank, SBI, UTI Bank etc. The ICICI has launched
ATM Services to its customers in all the Metropolitan
Cities in India. By the end of 1990 Indian Private Banks
and public sector banks have come up with their own
ATM Network in the form of SWADHAN. Over the past
year upto 44 banks in Mumbai, Vashi and Thane, have
became a part of SWADHAN a system of shared
payments networks, introduced by the Indian Bank
Association (IBA).
4) E-Cheaques: The e-cheaques consists five primary
facts. They are the consumers, the merchant, consumers
bank the merchants bank and the e-mint and the clearing
process. This cheaquring system uses the network services
to issue and process payment that emulates real world
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Products and Services offered by bank
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Products and Services offered by bank
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Products and Services offered by bank
7 Mobile Banking: A new revolution in the realm of ebanking is the emergence of mobile banking. On-line
banking is now moving to the mobile world, giving
everybody with a mobile phone access to real-time
banking services, regardless of their location. But there is
much more to mobile banking from just on-lie banking. It
provides a new way to pick up information and interact
with the banks to carry out the relevant banking business.
The potential of mobile banking is limitless and is
expected to be a big success. Booking and paying for
travel and even tickets is also
expected to be a growth area.
According to this system,
customer can access account details
on mobile using the Short Messaging System (SMS)
technology6 where select data is pushed to the mobile
device. The wireless application protocol (WAP) technology,
which will allow user to surf the net on their mobiles to
access anything and everything. This is a very flexible way of
transacting banking business.
Already ICICI and HDFC banks have tied up cellular
service provides such as Airtel, Orange, Sky Cell, etc. in Delhi
and Mumbai to offer these mobile banking services to their
customers.
8 Internet Banking: Internet banking involves use of
internet for delivery of banking products and services. With
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Products and Services offered by bank
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Products and Services offered by bank
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Products and Services offered by bank
BANKING SERVICES
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Products and Services offered by bank
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Products and Services offered by bank
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Products and Services offered by bank
responsible for marketing the new stock, though this may be a joint
effort with the company and managed by the merchant bank. For very
large stock offerings, several merchant banks may work together, with
one being the lead underwriter.
By limiting their scope to the needs of large companies, merchant
banks can focus their knowledge and be of specific use to such clients.
Some merchant banks specialize in a single area, such as underwriting
or international finance
Loan syndication.
A merchant banking subsidiary set up by several banks that may or
may not be of the
same nationality. consortium banks are common in the Euromarket
and are active in loan syndication.
OTHER ADVANTAGES OF SYNDICATED LOANS
In addition, economists and syndicate executives contend that there
are other, less obvious ssadvantages to going with
a syndicated loan. These benefits include:
Syndicated loan facilities can increase
competition for your business, prompting other
banks to increase their efforts to put market
information in front of you in hopes of being
recognized.
Flexibility in structure and pricing. Borrowers have a variety of
options in shaping their syndicated loan, including multicurrency
options, risk management techniques, and prepayment rights without
penalty.
Syndicated facilities bring businesses the best prices in aggregate and
spare companies the time and effort of negotiating individually with
each bank.
Loan terms can be abbreviated.
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Products and Services offered by bank
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Products and Services offered by bank
Internet banking
has become
widely popular
among the
masses because
of its wide array
of benefits. All
banks offer the
online banking
facility for their customers nowadays. Online banking has made the
lives easier for people who are too busy to go to bank for conducting
their financial transactions. Net banking offers the flexibility to do
financial transaction on any day irrespective of the time. In todays
fast paced life, people are too much stressed out because of their work
pressure and net banking offers them peace of mind as they can pay
their bills, book their tickets, do online shopping, etc. by relaxing on
couch in their home. Best part of net banking is that it is very easy to
do any transaction over the net and highly secure website takes care of
all your worries.
All one need is a computer, PDA or cell phone with active internet
connection to get going with net banking. Before using net banking,
one needs to activate net banking facility with his/her bank. Bank
provides a unique user ID and password for its customers to login into
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Products and Services offered by bank
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Products and Services offered by bank
Factoring
Factoring is a financial option for the management of receivables. In
simple definition it is the conversion of credit sales into cash. In
factoring, a financial institution (factor) buys the accounts receivable
of a company (Client) and pays up to 80 %( rarely up to 90%) of the
amount immediately on agreement. Factoring company pays the
remaining amount (Balance 20%-finance cost-operating cost) to the
client when the customer pays the debt. Collection of debt from the
customer is done either by the factor or the client depending upon the
type of factoring. We will see different types of factoring in this
article. The account receivable in factoring can either be for a product
or service. Examples are factoring against goods purchased, factoring
for construction services (usually for government contracts where the
government body is capable of paying back the debt in the stipulated
period of factoring. Contractors submit invoices to get cash instantly),
factoring against medical insurance etc. Let us see how factoring is
done against an invoice of goods purchased.
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Products and Services offered by bank
Characteristics of factoring
1. Usually the period for factoring is 90 to 150 days. Some factoring
companies allow even more than 150 days.
2. Factoring is considered to be a costly source of finance compared to
other sources of short term borrowings.
3. Factoring receivables is an ideal financial solution for new and
emerging firms without strong financials. This is because credit
worthiness is evaluated based on the financial strength of the customer
(debtor). Hence these companies can leverage on the financial
strength of their customers.
4. Bad debts will not be considered for factoring.
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Products and Services offered by bank
Portfolio management
Third-Party Portfolio Management Services (PMS) are designed for a
select few who want more from their investments. You can consider
how more sophisticated investment strategies could be applied for
your benefit, even if it means taking on additional volatility in
investment returns. A reputed portfolio manager will then craft a
portfolio especially for you, based on your specific objectives. Your
portfolio may combine a basket of securities including derivatives,
stocks, bonds and money market instruments, and your portfolio
manager may take a more focused exposure in select securities at
times, to maximize your opportunity from them.
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Products and Services offered by bank
NRI SERVICES
The bank provides types of accounts
to nri
Non-resident (External) Rupee Accounts (NRE A/cs.)
Non-resident (Ordinary) Rupee Accounts (NRO A/cs.)
Foreign Currency Non-resident Accounts (FCNR(B) A/c s) -Resident Foreign Currency Account (RFC A/cs.)
Letter of credit
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Products and Services offered by bank
Mortgage bank
Mortgage bank specializes in originating
and/or servicing mortgage loans.
A mortgage bank is a state-licensed banking entity
that makes mortgage loans directly to consumers. The
difference between a mortgage banker and a mortgage broker is that
the mortgage banker funds loans with its own capital.
Generally, a mortgage bank originates a loan and places it on a preestablished warehouse line of credit until the loan can be sold to an
investor such as Fannie Mae, or Freddie Mac. The process of selling a
loan from the mortgage bank to another investor is referred to as
selling the loan on the secondary market.
Mortgage banks frequently use the secondary market to sell loans
because the funds received pay down their warehouse lines of credit
which enables the mortgage bank to continue to lend. A mortgage
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bank is not regulated as a federal or state bank and does not take
deposits from consumers or businesses. A mortgage bank raises some
equity which it uses to guarantee the warehouse line and the bulk of
the funds are provided by the warehouse lender.
A line of credit is any credit source extended to a government,
business or individual by a bank or other financial institution. A line
of credit may take several forms, such as overdraft protection,
demand loan, special purpose, export packing credit, term loan,
discounting, purchase of commercial bills, etc. It is effectively a bank
account that can readily be tapped at the borrower's
discretion. Interest is paid only on money actually withdrawn,
although the borrower may be required to pay an unused line fee,
often an annualized percentage fee on the money not withdrawn.
Lines of credit can be secured by collateral or unsecured.
Lines of credit are often extended by banks, financial institutions and
other licensed consumer lenders to creditworthy customers (though
certain special purpose lines of credit may not have creditworthiness
requirements) to address liquidity problems; such a line of credit is
often called a personal line of credit. The term is also used to mean
the credit limit of a customer, that is, the maximum amount of credit a
customer is allowed.
Cash credits
A cash credit is a short-term cash loan to a company. A bank provides
this type of funding, but only after the required security is given to
secure the loan. Once a security for repayment has been given, the
business that receives the loan can continuously draw from the bank
up to a certain specified amount.
Overdraft
An overdraft occurs when money is withdrawn from a bank account
and the available balance goes below zero. In this situation the
account is said to be "overdrawn". If there is a prior agreement with
the account provider for an overdraft, and the amount overdrawn is
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Chapter 5
Challenges faced by
banks
Interest rate risk
Interest rate risk can be defined as exposure of bank's net interest income to
adverse movements in interest rates. A bank's balance sheet consists mainly
of rupee assets and liabilities. Any movement in domestic interest rate is the
main source of interest rate risk.
Interest rates and non-performing assets
The best indicator of the health of the banking industry in a country is its
level of NPAs. Given this fact, Indian banks seem to be better placed than
they were in the past. A few banks have even managed to reduce their net
NPAs to less than one percent (before the merger of Global Trust Bank into
Oriental Bank of Commerce , But as the bond yields start to rise the chances
are the net NPAs will also start to go up. This will happen because the banks
have been making huge provisions against the money they made on their
bond portfolios in a scenario where bond yields were falling.
Reduced NPAs generally gives the impression that banks have strengthened
their credit appraisal processes over the years. This does not seem to be the
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case. With increasing bond yields, treasury income will come down and if
the banks wish to make large provisions, the money will have to come from
their interest income, and this in turn, shall bring down the profitability of
banks.
Competition in retail banking
The entry of new generation private sector banks has changed the entire
scenario. Earlier the household savings went into banks and the banks then
lent out money to corporates. Now they need to sell banking. The retail
segment, which was earlier ignored, is now the most important of the lot,
with the banks jumping over one another to give out loans. The consumer
has never been so lucky with so many banks offering so many products to
choose from. With supply far exceeding demand it has been a race to the
bottom, with the banks undercutting one another. A lot of foreign banks
have already burnt their fingers in the retail game and have now decided to
get out of a few retail segments completely.
The nimble footed new generation private sector banks have taken a lead on
this front and the public sector banks are trying to play catch up.
The PSBs have been losing business to the private sector banks in this
segment. PSBs need to figure out the means to generate profitable business
from this segment in the days to come.
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This is not an efficient use of capital. The company with the best credit
rating is more likely to repay the loan vis a vis the company with a low
credit rating. So the bank should be setting aside a far lesser amount of
capital against the risk of a company with the best credit rating defaulting
vis a vis the company with a low credit rating. With the BASEL-II norms
the bank can decide on the amount of capital to set aside depending on the
credit rating of the company.
Credit risk is not the only type of risk that banks face. These days the
operational risks that banks face are huge. The various risks that come under
operational risk are competition risk, technology risk, casualty risk, crime
risk etc. The original BASEL rules did not take into account the operational
risks. As per the BASEL-II norms, banks will have to set aside 15 per cent
of net income to protect themselves against operational risks.
So to be ready for the new BASEL rules the banks will have to set aside
more capital because the new rules could lead to capital adequacy ratios of
the banks falling. How the banks plan to go about meeting these
requirements is something that remains to be seen. A few banks are
planning initial public offerings to have enough capital on their books to
meet these new norms.
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Conclusion
The banking scenario has changed drastically. The changes
which have been took place in the last ten years are more
than the changes took place in last fifty years because of the
institutionalization, liberalization, globalization and
automation in banking industry. Now, bank has spread out in
to remote areas of our country through innovative
technology.
To face competition it is necessary for banks to absorb
the technology and upgrade their services. Today bank is
marked by customer expectation and technological
innovations. Various banks that have harnessed and
leveraged technology having innovative strategies.
In todays context are following the strategy of
innovative banking than retail banking which in need of
the hour. Banks retains their customers according to their
profiles and preferences. Prompt and efficient banking
service, thus has become very significant.
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FIELD STUDY
Bank details: state bank of india
Branch: Ulhasnagar-3
Person visited: Mr.H.P DESHPANDE
Chief manager
State bank of india.
QUESTIONNAIRE
1.Are there any products or services that are specially
given to NRIs ?
Yes through different types of accounts like NRO, NRE,
FCNR ETC.
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Almost 150.
11.
Is customer services is an instrument to
create a sense of competition among banks ?
Yes definitely it is.
Bipliography
Primary data :
Secondary data:
Books and magazines
Innovations in banking and insurance
-Romeo mascarenhas
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Websites www.wikipedia.com
www.sbi.co.in.